Vicente E. Reyes & Associates

March 4, 2008 BIR RULING [DA-122-08] RR 2-98, as amended, 108; DA-558-2006; VAT Ruling 039-92 Vicente E. Reyes & Associates Certified Public Accountants 26 Tirad Pass St., Sta. Mesa Heights Quezon City Attention: Amado P. Galang Managing Partner Gentlemen : This refers to your letter dated January 9, 2008 requesting for a ruling on behalf of your client, CRR Service Corporation, on what is the applicable tax base on which to compute its withholding tax and value added tax. It is represented that CRR Service Corporation is in the business of providing manpower services and business process outsourcing to various clients; that it bills and collects the costs of personnel involved in the contract and mark-up on the same; and that some of its clients compute the 2% withholding tax and the 12% value-added tax (VAT) based on the total billing, while others compute the same based on agency income only. In reply, please be informed that for purposes of creditable withholding tax on such income payments, the tax base shall be the gross income embracing the cost of personnel and agency income, etc., but exclusive of the VAT, of the payee. VAT as a tax cannot be subject to another tax. Such being the case, the VAT when included in the gross income payment of the payor-buyer of the goods or services must be excluded in computing the creditable withholding tax. Likewise, the tax base in computing the value-added tax on the sale of services is gross receipts which means the total amount of money or its equivalent representing the contract price, compensation or service fee, including the amount charged for materials supplied with the services and deposits or advance payments, actually or constructively received during the taxable quarter for the services performed or to be performed for another person. CIAHaT Accordingly, for CRR Service Corporation's income payment received from its clients, the tax base shall be the gross income payment net of value-added tax. As such, it is subject to 2% withholding tax pursuant to Section 2.57.2 (E) (4) (g) of Revenue Regulations (RR) No. 2-98 as amended by RR No. 6-2001, and 12% VAT based on the total gross receipts or gross income pursuant to Section 108 of the Tax Code of 1997, as amended. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation it will disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service